EU lawmakers vote for new KYC rules, roiling the crypto industry

    03 Apr 2022

    European Union lawmakers voted on Thursday in favor of controversial measures to outlaw anonymous crypto transactions, a move the industry said would stifle innovation and invade privacy. Coinbase, Gemini, and other companies denounced the EU’s anti-money-laundering requirements.

    According to Reuters, the proposals are intended to extend anti-money laundering (AML) requirements that apply to conventional payments over EUR 1,000 to the crypto sector. The new know-your-customer (KYC) rules, which would also cover even the smallest crypto transactions involving unhosted or self-hosted wallets, are aimed at curbing money laundering in Europe.

    Further measures under discussion could see unregulated crypto exchanges cut off from the conventional financial system.

    The EU vote underlines growing concern over the use of crypto for money laundering and other illicit activity, and the push to make crypto companies more accountable for the digital assets that flow through their platforms.

    National governments said in December they wanted to scrap the EUR 1,000 threshold for crypto, on the basis that digital payments can easily circumvent the limit, and to include private wallets that aren’t operated by regulated crypto asset providers.

    Members of the center-right European People’s Party (EPP) opposed many of the more controversial changes, condemning what they called a “de facto ban of self-hosted wallets.”

    “Such proposals are neither warranted nor proportionate,” EPP economic spokesperson Markus Ferber said in an emailed statement Thursday. “With this approach of regulating new technologies, the European Union will fall further behind other, more open-minded jurisdictions.”

    A separate legal proposal also discussed Thursday would stop transfers being made to “non-compliant” crypto service providers, which includes those operating in the EU without authorization or that are not affiliated to or established in any jurisdiction.

    The plans must also be agreed on by both the parliament and national ministers, who meet as the EU Council, in order to pass into law.

    The crypto industry has reacted strongly against the Thursday EU Parliament voting.

    Coinbase CEO Brian Armstrong expressed his frustrations against the move via Twitter, as he drew comparisons with fiat to highlight the absurdity of reporting and verifying a 1,000 Euro transaction:

    “Imagine if the EU required your bank to report you to the authorities every time you paid your rent merely because the transaction was over 1,000 euros. Or if you sent money to your cousin to help with groceries, the EU required your bank to collect and verify private information about your cousin before allowing you to send the funds.”

    “How could the bank even comply? The banks would push back. That’s what we are doing now,” he added.

    Also, Cameron Winklevoss, co-founder and president of Gemini, said to Protocol:

    “This regulation harms crypto innovation without a commensurate anti-money-laundering benefit.”

    Major crypto companies have recently unveiled initiatives aimed at improving the industry’s KYC and anti-money-laundering practices. Coinbase and Circle introduced a digital protocol that would enable companies to verify the identities of customers while allowing those customers to retain control over their personal information.

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